DCM Shriram Limited (NSE:DCMSHRIRAM) Goes Ex-Dividend Soon

Readers hoping to buy DCM Shriram Limited (NSE:DCMSHRIRAM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase DCM Shriram's shares on or after the 3rd of November will not receive the dividend, which will be paid on the 27th of November.

The company's next dividend payment will be ₹3.60 per share, on the back of last year when the company paid a total of ₹9.00 to shareholders. Calculating the last year's worth of payments shows that DCM Shriram has a trailing yield of 0.7% on the current share price of ₹1325.90. If you buy this business for its dividend, you should have an idea of whether DCM Shriram's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. DCM Shriram has a low and conservative payout ratio of just 23% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (68%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that DCM Shriram's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Check out our latest analysis for DCM Shriram

Click here to see how much of its profit DCM Shriram paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that DCM Shriram's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, DCM Shriram has lifted its dividend by approximately 9.6% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid DCM Shriram? Its earnings per share are effectively flat in recent times. The company paid out less than half its income and more than half its cash flow as dividends to shareholders. All things considered, we are not particularly enthused about DCM Shriram from a dividend perspective.

So if you want to do more digging on DCM Shriram, you'll find it worthwhile knowing the risks that this stock faces. For example, DCM Shriram has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.